The copyright reform train is gathering steam, but whose hand is at the controls? Tomorrow, the House Judiciary Committee will hold a hearing on "The Rise of Innovative Business Models: Content Delivery Methods In The Digital Age." We expect witnesses from the major movie and TV studios to expand on their recent theme: that major studios are doing plenty of innovation already, so Congress doesn't need to make copyright law more innovation-friendly. They will say studios' limited forays into digital distribution, like Hulu, HBO GO, Crackle, and the UltraViolet digital rights management (DRM) system are innovation aplenty. But that’s disingenuous, as they've continued to litigate with scorched-earth tactics against others who dare to innovate without the studios' permission.
Innovation is indeed the key to growing the arts, and the business of entertainment, and the studios' shift towards new distribution technologies is their best way forward. But the innovation that happens within the walls of Disney, Time Warner, and Comcast/NBC is not enough. Trailblazing innovation that empowers individuals and creates new markets almost never happens within the walls of well-established, market-dominating companies. IBM didn't invent the personal computer. AT&T didn't invent the Internet. Sears didn't invent online retail. And major movie and TV studios have fought against every major shift in video distribution, from cable to VCRs to DVRs.
The reasons are well known. Disruptive innovations aren't in high demand when they first appear, and don't produce the revenues that stock markets demand of big public companies. Large, successful companies change their processes and values slowly, if at all, and new technologies compete with existing businesses.1 That's why RCA, once the U.S.'s radio behemoth, helped keep television from going mainstream throughout the 1930s and 40s.2 That's why we can't expect today's major media and entertainment companies to develop tomorrow's technologies.
Our major media companies claim to be focused on innovation. And indeed, popular Internet-based video distribution platforms like Netflix and Amazon continue to gain ground. But many of the studios' forays into digital distribution promise incremental improvements at best. Encumbered with DRM, they present a complex and difficult user experience and may violate users' privacy. UltraViolet, which was announced in 2010, promises to allow customers to watch movies on multiple devices through copies or streaming. But it requires multiple sign-ups, complicated setups, and it puts a varying and bewildering set of restrictions on each movie or episode that people buy. It has failed to gain much ground among consumers.
This isn't surprising. The studios and their partners should continue to focus on innovation, because it will grow their businesses—and the arts—without the need for more draconian expansions of copyright. But at the same time, we can't expect all future innovation, especially truly disruptive inventions, to happen under their roof. That's why Congress needs to keep the entrenched media companies from having veto power over others' innovations. Among other fixes, Congress should fix Section 1201 of the Digital Millennium Copyright Act to remove the legal threat from legitimate new products, clarify the "first sale" right to create aftermarkets in digital goods, and make copyright's penalties more sensible and predictable so that entrepreneurs will be able to take risks.
Tomorrow, as Congress hears about innovative business models for distributing creative work, it should focus on encouraging innovation everywhere it happens—in garages, as well as Fortune 500 companies. And that means fixing copyright.